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Fiduciary Law

A fiduciary is a person who occupies a position of trust in relation to someone else such that he is required to act for the latter's benefit within the scope of that relationship. In business or law, it generally means someone with specific duties, such as those that attend a particular profession or role, e.g., investment advisor or trustee.

Legal considerations
A fiducial relationship does not exist simply because someone places his trust in another person. One must have a reasonable basis for placing his trust in someone, one that arises from the facts that pertain to that relationship. A court ruled, "Mere respect for the judgment of another or trust in his character is not enough to constitute such a relationship. There must be such circumstances as indicate a just foundation for a belief that in giving advice or presenting arguments one is acting not in his own behalf, but in the interests of another party." (''Cranwell'' v. ''Oglesby'', 12 N.E. 2d 81, 299 Mass. 148, 1937).

Professions
Members of various professions such as physicians, architects, and lawyers, have highly specialized training, and they often possess credentials that enable them to claim expertise in a particular field. This claim would tend to constitute a reasonable basis of trust on the part of others who avail themselves of their services, thereby placing the professional in the position of a fiduciary. Most professions are subject to specific codes of conduct prescribed by law or independent credentialing authorities (e.g., bar associations or universities).

Other roles
Understood in its broadest terms, one can imagine a number of other fiduciary positions that arise from particular kinds of relationships, for example, the relationship between employers and employees, investment managers and investors, parents and children, teachers and students, and so forth. In each case, there the person who is the fiduciary acts for the benefit of people who have a reasonable basis of placing their trust in them based on the scope of the relationship and the explicit or implicit agreement between the parties as to the terms that govern the relationship.

Moral fiduciary
Some philosophers (see, for example, Michael E. Berumen), argue that everyone who is a moral agent is also a moral fiduciary, because he has a responsibility towards others, namely, to conduct himself in accordance with moral rules, and that other members of the moral realm have a reasonable basis for expecting such behavior.

General fiduciary duties
Benjamin Cardozo, while sitting on the Court of Appeals of New York made perhaps the most famous description of fiduciary duties in ''Meinhard v. Salmon,'' 249 N.Y. 458, 464 (1928):

::Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.

Generally, the law recognizes three major fiduciary duties:

• duty of loyalty, i.e. a fiduciary must not place his own interests ahead of the beneficiary's interest;
  
• duty of care, i.e. a fiduciary must exercise an amount of care appropriate to manage the beneficiary's interest; and
  
• duty of disclosure, i.e. a fiduciary must disclose certain information to the beneficiary.
  

Fiduciary law is particularly relevant to the law of trusts, partnerships, agency, and corporate officers and directors. Fiduciary duties are always particularized to the actual relationships they occur in, and often they can be modified (or even waived) by contract.

The following are encapsulations of duties outlined in Berumen's ''Do No Evil: Ethics with Applications to Economic Theory and Business'', which would seem to apply to all fiduciary relationships:

• Fiduciaries are responsible for ensuring that they have the necessary knowledge to perform in accordance with their capacity.
  
• Fiduciaries must disclose any limitations, conflicts of interest, or barriers to performing their duties.
  
• Fiduciaries must comply with any legal and professional requirements pertaining to their roles, and also with any relevant moral strictures.
  
• Fiduciaries must not take unfair advantage of their relationship (e.g., misuse information) in a way that could have deleterious effects on those who place their confidence in them.
  

Source: Wikipedia. All text is available under the terms of the GNU Free Documentation License (see Copyrights for details).

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